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Federal Reserve Board Chairman Ben Bernanke accepted responsibility on behalf of regulators Wednesday for a troubled independent foreclosure review process that has delayed payments to borrowers for nearly two years.
February 27 -
Comptroller Thomas Curry argued Wednesday that regulators had no choice but to halt the independent foreclosure review process in favor of faster payouts to affected borrowers. He also provided new details on how payments would proceed.
February 13 -
Rep. Maxine Waters, the top Democrat on the House banking panel, is asking Rep. Jeb Hensarling, the committee's chairman, to hold a hearing with regulators on the $8.5 billion mortgage servicer settlement announced last month that ended the troubled independent foreclosure review.
February 5
WASHINGTON — Thirteen mortgage servicers will begin compensating more than 4 million borrowers in April as part of the amended consent orders released by regulators on Thursday.
The amendments by the Office of the Comptroller of the Currency and the Federal Reserve Board require the nation's largest servicers to provide $9.3 billion in payments and loan assistance to borrowers in foreclosure between 2009 and 2010.
The settlements come after regulators called off an expensive, two-year independent foreclosure review process, arguing it could have continued indefinitely had they not reached a settlement in January.
"Our motivation here was recognizing the fact that getting compensation to consumers was taking too long" in the review process, said Morris Morgan, large bank deputy comptroller at the OCC, in a conference call Thursday. "We were motivated to provide more money to consumers in a much quicker fashion."
The news came just a day after Fed Chairman Ben Bernanke
The process has raised red flags among Democratic lawmakers who requested a hearing last month with the regulators to explain the review process and payment distribution.
The OCC has yet to detail exact payouts based on each borrower's situation but it did release some specifics on how borrowers will be viewed.
Regulators have established 11 categories based on the status of the borrower in foreclosure, modification or loss mitigation process — although officials said there's no monetary ranking to those categories. The overall settlement calls for $3.6 billion in payouts and $5.7 billion in foreclosure prevention assistance. The payouts are expected to range from hundreds of dollars to $125,000.
"We're in the process of determining how many borrowers are in each category and then we'll start determining distribution amounts which will set the payouts for each category," said Morgan when questioned by reporters.
The OCC has hired Rust Consulting Inc. as the paying agent, which is contacting the 4.2 million affected borrowers by the end of March. Rust, which was an administrator for the consultants doing the foreclosure reviews, is handling all payments and communication with the borrowers. OCC Spokesman Bryan Hubbard said payouts should begin in April though a deadline for the last payment has not been set yet.
The overall settlement amount increased by nearly $10 million from last month due to corrections from three servicer agreements: Bank of America, Citibank and HSBC.
Each individual bank's payout amount is based on the percentage of borrowers they serviced among the 4.2 million. The overall amounts range from nearly $2.9 billion at Bank of America to $16 million at Sovereign Bank.
However, Morgan cautioned reporters not to think about the settlement on a bank-by-bank basis, but as "one group" in a fund.
"At this point, it's a zero-sum game for us," he said. "It's just a matter of how to spend the money."
Still, critics say regulators have lost sight of calculating true harm to each borrower in their rush to reach an overall settlement number. The amended consent orders forfeit the previous process in going loan-by-loan to determine whether there were servicing errors.
Only three of the 13 largest servicers, representing about 457,000 in affected mortgages, have instead agreed to proceed with the previous independent foreclosure review process: EverBank, OneWest and GMAC. Those reviews are expected to be complete in the coming year.
Had the agencies maintained their course with all of the services it would "significantly delay compensation without appreciable benefit to the affected borrowers," argued Comptroller Thomas Curry earlier this month.
"I recognize that this approach is not without its critics," said Curry before the Women in Housing and Finance Feb. 13. "The best available information we have suggests the cash payout alone is several times the potential payout had the reviews run their course."
Indeed, the OCC initially calculated that 6.5% of borrowers suffered substantive harm as part of foreclosure reviews based on its initial loan sampling. About 104,000 loans completed the review process.
Now, Morgan said the percentage "has declined somewhat," though he did not provide an exact figure.
OCC officials also said they had no intention of "shredding" the foreclosure reviews performed by consultants thus far and were intending to use it in supervising the bank servicers.
"That information is being analyzed by us and we think there's a great deal of value provided up to date," said Monica Freas, assistant director of enforcement and compliance. That information can "inform our supervisors of these institutions on a go-forward basis and ensure what needs to be done to get it fixed."
